Coffman v. Maryland Pub. Co.

• Decision Date: 14 June 1934
• Docket Number: 48.
• Parties: COFFMAN v. MARYLAND PUB. CO. ET AL.
• Court: Maryland Court of Appeals

173 A. 248

167 Md. 275

COFFMAN v. MARYLAND PUB. CO. ET AL.

No. 48.

Court of Appeals of Maryland

June 14, 1934

Appeal from Circuit Court, Montgomery County; Charles W. Woodward Judge.

Bill by John W. Coffman against the Maryland Publishing Company and another. From a decree sustaining a demurrer to the bill complainant appeals.

Affirmed.

OFFUTT and PARKE, JJ., dissenting in part.

Argued before BOND, C.J., and URNER, ADKINS, OFFUTT, DIGGES, PARKE and SLOAN, JJ.

Wilson L. Townsend, of Washington, D. C., for appellant.

T. Howard Duckett, of Washington, D. C. (Charles C. Marbury, of Washington, D. C., on the brief), for appellees.

OFFUTT Judge.

The Maryland Publishing Company is a Maryland corporation, having an authorized capital stock of $150,000 in preferred stock divided into 1,500 shares of the par value of $100 each, of which $40,000 has been issued, and 6,000 shares of common stock having no par value. The preferred stock provides for a cumulative 6 per cent. dividend but has no voting privileges.

It was incorporated to carry on a general publishing and printing business, but its principal business is the publication of a weekly newspaper known as the Maryland News.

In connection with that business it acquired in 1927 three other weekly newspapers published in Montgomery county, Md., and known as the Chevy Chase Gazette, the Montgomery News Advocate, and the Takoma News, all of which were consolidated and published from that time as the Maryland News.

At that time the Takoma News was owned, managed, and published in Takoma Park, Md., by John W. Coffman, who for an unnamed consideration sold it to the Maryland Publishing Company on July 30, 1927, and accepted in part payment of the purchase price sixty shares of the preferred, and sixty shares of the common, stock of the new corporation. Under the certificate of incorporation, 3,050 shares of the common stock of the Maryland Publishing Company, that being a controlling interest, were issued to E. Brooke Lee as compensation for services rendered by him in "the organization of the Company," and from that time the paper was published, and the company operated under his control, management, and direction. In the course of its business, the company from time to time borrowed money from Lee, and on March 25, 1933, it executed to him a "chattel deed of trust" to secure the payment of certain notes payable to him aggregating $75,000 in amount, and which for that purpose pledged all the property and assets of the company.

On December 29, 1933, Coffman on his own behalf, and on behalf of other stockholders who might come in, filed the bill of complaint in this case against the Maryland Publishing Company and E. Brooke Lee, in which he prayed the following relief:

"1. That a Receiver be appointed by this Honorable Court to take charge of and manage the affairs and conduct the business of the said Maryland Publishing Company, pending further order of the court in the premises.

2. That the said E. Brooke Lee may, by injunction, be restrained from transferring, negotiating, or in any way disposing of said notes of said corporation, pending the determination of this case.

3. That the said chattel deed of trust and the notes secured thereby be held to be null and void and of no effect and that said notes be delivered up for cancellation.

4. That an account be stated by the Receiver appointed by this court setting out the financial condition of said corporation and that said receiver be instructed to disallow, as an obligation of said corporation any and all moneys loaned by the said E. Brooke Lee to the said corporation to meet deficits incurred through additional expense growing out of printing and publication of said Maryland News in the interest of personal political policies.

5. That in the event it appears from the report of said receiver that said corporation is insolvent and its continued operation is detrimental to the interest of said stockholders said corporation may be dissolved and its assets liquidated and distributed.

6. That your orator may have such other and further relief as his case may require."

The allegations of the bill upon which those prayers rest are, in addition to what has been stated, (1) that Lee used and operated the paper as a vehicle for partisan propaganda to further his own personal and political ambitions as well as those of the political organization with which he was identified, and that as a result of that management there was a continuous operating loss which resulted (2) in the insolvency of the company; (3) "that said operating deficits have been financed by loans from the said E. Brooke Lee to the said corporation for the purpose of maintaining said newspaper as a partisan political organ and said corporation has thus become heavily involved in debt to the said E. Brooke Lee by reason of the gross mismanagement of said corporation and disregard of the rights and interests of the stockholders, and said corporation has been and is unable to meet its current obligations without the aid of the money thus loaned to the said corporation by the said E. Brooke Lee, the aggregate of which loans now greatly exceed the assets of said corporation, and said corporation is insolvent"; (4) that no stockholders' meetings were called in 1928, 1929, or 1932; and that (5) the president of the company in violation of his statutory duty has failed except in one instance to file an annual report of the affairs of the company.

To that bill the defendants filed a general demurrer and from a decree sustaining that demurrer the complainant appealed.

The allegations of the bill may in respect to the relief sought be considered as falling into two categories: (1) Those relating to the policy and management of the company, and (2) those having to do with its solvency.

The material allegations of the bill classified under the first caption are that: "The said directors and officers, under the direction of the President, E. Brooke Lee, have adopted as the primary policy of said newspaper the promotion of the political partisan aims and projects of the political organization of which the said E. Brooke Lee was and is the leader and have utterly disregarded their fiduciary duty to the stockholders of said corporation to manage and operate said newspaper and said corporation as a business enterprise for the advantage and interest of said stockholders. That in following the selfish and personal policy of the said officers and directors to operate said newspaper primarily as a partisan political organ and vehicle of propaganda, said newspaper during long periods of time has been published with grossly excessive pages of political propaganda at great and unjustifiable expense, not warranted by its circulation or financial condition, in violation of all principles of sound business management. That during the political campaigns when said newspaper was so printed with excessive and unjustified additional pages great numbers of additional copies of said paper were printed for free distribution at great expense to said corporation and with no financial return, in furtherance of the aims of said officers and directors to promote the political and personal ambitions of the said E. Brooke Lee and the organization of which he was and is the leader. That such gross negligence, mismanagement and deliberate breach of fiduciary duties has resulted in a continuous operating loss in the business of said corporation, and by reason thereof said newspaper has been continuously operated at a loss of several thousand dollars annually."

Those relating to the alleged insolvency of the company are that it "has been and is unable to meet its current obligations without the aid of the money thus loaned to the said corporation by the said E. Brooke Lee, the aggregate of which loans now greatly exceed the assets of said corporation, and said corporation is insolvent," and "that the said corporation, as now managed and operated, is unable to meet the heavy interest charges and payments required by said notes and deed of trust, and upon inevitable default in payment of said interest and payments said assets of the corporation are liable to be sold, its business destroyed, and the investment of your orator and other preferred stockholders wiped out." Reduced to their lowest terms, the charges of mismanagement, negligence, and "breach of fiduciary duties" are that the majority stockholders of the company operating through Lee have managed the newspaper as a partisan political organ to promote the aims and ambitions of a partisan organization with which Lee was identified, and that, as an incident of that policy, it devoted more space to such propaganda than was consistent with sound business management, and printed "great numbers of additional copies of said paper" for free distribution. The essence of the complaint is, not that that conduct was immoral or evil per se, but that in the opinion of the complainant it was unprofitable, and resulted in a "continuous operating loss."

An elementary principle of equity pleading is that one who seeks relief in a court of equity must state fully, clearly, frankly, and with precision the facts upon which his claim rests, Story, Eq. Pl. §§ 240 et seq., 251, 257; Miller's Eq. Proc. pp. 116-119; Fletcher's Eq. Pl. & Pr. §§ 85, 87, and 190, and mere opinions, or conclusions will not be accepted as a sufficient substitute for facts, State Founders, Inc., v. Oliver, 165 Md. 380, 169 A. 59; Fletcher, Eq. Pl. & Proc. § 102; Wootten v. Burch, 2 Md. Ch. 198; Dennis v. Dennis, 15 Md. 73.

Tested by that standard, the charges of fraud and mismanagement appear to be insufficient, because at most they amount to no more than that in the...